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Optimal capacity in the banking sector and economic growth

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Author Info

  • Bruno Amable

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

  • Jean-Bernard Chatelain

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

  • Olivier De Bandt

    (Centre de recherche de la Banque de France - Banque de France)

Abstract

The paper investigates, from the welfare and growth point of view, the determination of the optimal capacity of the banking system. For that purpose, we consider an overlapping generation model with endogenous growth. There is horizontal differentiation and imperfect competition in the banking sector. Macro-economic shocks affect the return on capital and, together with the expectations of depositors, condition the stability of the banking sector. We specify to what extent deposit insurance may reduce instability and increase the number of deposits, welfare and growth. We also characterise the conditions under which excess banking capacities may appear and how their reduction may improve welfare.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00112535.

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Date of creation: 2002
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Publication status: Published, Journal of Banking and Finance, 2002, 26, 2-3, 491-517
Handle: RePEc:hal:cesptp:halshs-00112535

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00112535
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Related research

Keywords: Deposit insurance; Imperfect competition; Banking; Growth; Overlapping generation model;

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References

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  1. Mulligan, Casey B & Sala-i-Martin, Xavier, 1996. "Adoption of Financial Technologies: Implications for Money Demand and Monetary Policy," CEPR Discussion Papers 1358, C.E.P.R. Discussion Papers.
  2. Gali, Jordi, 1995. "Product diversity, endogenous markups, and development traps," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 39-63, August.
  3. Michael D. Bordo & Angela Redish, 1996. "A Comparison of the Stability and Efficiency of the Canadian and American Banking Systems 1870-1925," NBER Historical Working Papers 0067, National Bureau of Economic Research, Inc.
  4. Williamson, Stephen D, 1987. "Transactions Costs, Inflation, and the Variety of Intermediation Services," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(4), pages 484-98, November.
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Citations

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Cited by:
  1. Jean-Bernard Chatelain & Kirsten Ralf, 2012. "The Failure of Financial Macroeconomics and What to Do About it," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00706777, HAL.
  2. Wieneke, Axel & Gries, Thomas, 2011. "SME performance in transition economies: The financial regulation and firm-level corruption nexus," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 221-229, June.
  3. Jean-Bernard Chatelain & Kirsten Ralf, 2012. "The Failure of Financial Macroeconomics and What to Do About it," Post-Print halshs-00706777, HAL.
  4. Michael Graff, 2005. "Is There an Optimum Level of Financial Activity?," KOF Working papers 05-106, KOF Swiss Economic Institute, ETH Zurich.
  5. Marshall, David A., 2002. "Financial crises and coordination failure: A comment," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 547-555, March.

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